Behind the $83 a month HDB flat

In Financial competency, Political economy, Political governance, Property on 12/03/2012 at 4:37 am

(Or “Mixed thoughts about the poor having to take out a HDB mortgage” or “What the HELL? PAP misses the plot!”)

In, I suppose, an attempt to show that ministers were not talking rubbish about someone earning less than a $1000 being able to afford a HDB flat (thanks be to a government subsidy, and forced savings via the CPF system), the constructive, nation-building ST had an article on how Mohammad Charlie Jasni who is earning $850 a month is able to afford a two-room HDB flat.

The analytical, compassionate, risk-adverse part of me agreed

– With the view articulated by TOC’s Uncle Leong that it would be better if Mohammad was allowed to lease, and not have pay a mortgage ($44 versus $83 a month)

  — It’s cheaper.

  — There is a possibility of him defaulting and losing all that he and his his wife have put in ($40,000 in CPF savings), “the probability of job loss, pay cut, sickness or accident, may be relatively higher than others … the likelihood of him defaulting on his mortgage over the next 30 years may be high”.

  — He and his wife would have some savings for the couple’s old age. He is only able to pay only $83 a month because his and his wif’e’s CPF savings of $40,000 have been used up, reducing the amount owed to slightly more than $20,000.

– And with this comment on this TOC article thread, “I find it very CHILDISH for the government to glamorise a policy that enables a low income earner to own a HDB flat, and yet ignoring the fact that the same low income earner will face the bigger problems of making ends meet on the daily basic necessities like food and transport.

‘These low income earns may own a HDB flat but cannot survive paying the basic expenses in our daily life, and then end up dying of hunger… good policy meh? …”

On the other hand, the analytical, risk-taking side of me thinks that here is a couple who because of the CPF grant and forced savings have been given the chance to better themselves.

The couple can sell off the property after five years and make a good profit (at least $100,000) on the flat, even assuming a slightly weaker market. They can move to Johor, rent a place there, and he can commute. Alternatively in five years time, assuming he is allowed to rent the place out, he can use the rent money to rent a place in Johor, and commute. He could even go into business, while living in Johor.

The couple has options that leasing does not give them, albeit at greater risk. Many of the comments I read on this issue on the internet portray people like Mr Mohammad Charlie Jasni as passive and helpless. The one good thing the ST article shows is that this is not true. They are just as keen to better themselves as better-off, more fortunate S’poreans. In its Alice-in-wonderland way, the government is trying to help them out of a surreal place that is largely the creation of the government.

The issue is why is public housing so expensive: a two-room flat costs $99,200?, Note after $40,000 grant, the HDB loan is $59,220. On a 30-year mortgage at the HDB Concessionary Loan rate of 2.6%, the monthly repayment is $237. Mohammad is only able to pay $83 a month because the mortgage was reduced to slightly more than $20,000 because he and his wife have used up their CPF monies of $40,000. If they default …

But let’s celebrate Mr and Mrs Mohammad Charlie Jasni. They give the lie to the Hard Truth that only immigrants work harder and aspire to have a better life. They also give the lie to the casual assumption of many do-gooders that the poor are passive and helpless.

  1. A couple comments –

    First, TOC should find someone, and I am sure there are many, who has defaulted on their $100,000 flat. You can always find some exceptions but is the $100,000 flat really affordable for a typical low income family? How probable is someone in their income group with a $40,000 CPF savings?

    Second, what is your point of suggesting that they move to Johor? Should they eat there, live there, seek medical there, study there? Perhaps all the old folks should retire in China, India, Malaysia, Indonesia because they can’t afford to retire in Singapore. Is Singapore a nation if the poor and old are forced to live elsewhere?

    • Passed on yr suggestion to TOC.

      As to yr second point, I’m pragmatic.I don’t have a problem using Johor hospitals or living in Batam, Bintang or JB. I’m here because of circumstance. But to me living offshore is not an issue.I’m a quitter in residence.

  2. One key point was conveniently left out. How long would it take someone earning $1k a month to save $40k in cpf oa? Ten years? Twenty years?

  3. There is something I feel that you missed out in your analysis.

    By leasing from the government and saving about $40 a month, the fellow would have saved $480 in one year. Using your logic of him trying to be an entrepreneur to make his life better, he could used these monies as capital (coupled with a microloan taken from the government new initiatives) to do a small business instead. The difference is that with liquidity on his hands, he could have started earlier. From a financial planning standpoint, risky ventures should ideally be taken at an earlier age so that in the case of failure, an individual still has a long time horizon to work and save for retirement. As for the loan, he would be effectively exchanging his HDB home loan for a business microloan.

    There are no guarantees that he will make a profit from his 2-room HDB flat after 5 years, nor if he will be able to rent it out successfully. Any rental collected would still have to be used partially or fully to pay for the HDB loan and interest (2.6% + principal repayment). Would he even have enough leftover to rent in Johor by then? And what if 5 years from now, Malaysia experiences a super-boom and surpasses Singapore in growth, our currencies trade at parity and costs of living are similar?

    The best laid plans of mice and men often go awry. Locking himself into a 5 year fixed contract on an asset beyond his REASONABLE means to afford can backfire spectacularly. That is why all things equal, it is better for him to keep liquidity. There are many ways to make money, no need to bet it all on property.

  4. I think it’s misleading to say this chap earns just $850. Doesn’t his wife also earn something working part-time? That’s why she’s got CPF to help bankroll the purchase. So his household isn’t the typical $1K a month income type! 🙄

  5. His household income actually over $1,500/mth. That’s why they only qualified for $40K grant and not the max $60K. He stupid, he should have said his wife just kena retrenched and jobless. Like that can qualify for $60K. $100K – $60K grant – $40K CPF = Fully paid-up flat.

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